Wednesday, August 20, 2014

The use of recruiters by a startup will shift dramatically over the lifetime of the company.
As a small startup (e.g. 3-10 people), using a recruiter is usually not as useful as direct founder or employee networking, using LinkedIn and other tools. In contrast, when I was at Twitter, the company grew from ~90 to ~1500 people over a 2.5 year period. As your company scales into the hundreds and thousands of people, you will want to bring specialized recruiters, sourcers, university programs managers etc. in-house and potentially use retained external recruiters for executive hires.

0. Early Days: Your Team As Recruiters.
Early on, the best approach to recruiting is to have people on your team actively refer in people from their network. Similarly, many founders & early employees spend as much as 30-50% of their time early on (e.g. when scaling from 3 to 15 people) on recruiting. There is no easy fix around it. You need to just grind through large numbers of people (via networking, LinkedIn, friends etc.) to find the handful of people to join your team.

Some startups I know successfully hire someone who is a mix of office manager / social media manager / recruiting coordinator. This person will often spend a lot of time scheduling referred candidates and reaching out to passive candidates via email and LinkedIn. Once the candidate expresses interest they pass them off to a founder or hiring manager.

One hack I have seen a few companies adopt is to have the person doing the recruiting contact candidates from the founders email address so there is no perceived hand off. This increase the response rate as many engineers may be willing to reply to a founder/fancy title but may not reply to more general recruiting pings.

1. Initial Scaling: Adding 15-20 People Per Year Or More: The In-House Recruiter.
Once a company hits a certain scale and is growing fast enough, hiring in house recruiters makes a lot of sense. The recruiter initially plays a few different roles that in larger stage companies will get split up including (i) sourcing, (ii) running the recruiting process (scheduling, collating feedback, coordinating with hiring manager etc.), (iii) in some cases delivering offers (although I think often hiring managers or founders can do this).

Depending on the strength of the recruiter (and, importantly, the company branding with your candidates), the recruiter will be able to hire 1-4 engineers per month. This shifts as the company scales and adds more differentiated roles (see below).

This means that if you are hiring less then 15 engineers a year, you may want to have a part-time or split-role recruiter, grow organically via company referrals, or find an alternate structure with external recruiters.

For non-engineering roles (e.g. sales) a single recruiter may be able to hire a larger number of people per month. This is driven in part by the referral heavy nature of sales hiring as well as the fact that there are fewer high growth companies for sales, marketing, and business development people to go to. In contrast, every startup is trying to hire engineers and designers.

Things that impact the ability of the recruiter to be effective includes:
-Brand of the startup with candidates.
-Strength of the hiring manager and executive team as recruiters. If they are active and engaged, it makes recruiting run smoother and will help to source and close more candidates.
-Breadth of network of the employees at the company.

The importance of the hiring manager and other executives being involved in the recruiting process (informal conversations, extending offers, meeting for lunch, etc.) can not be under emphasized, no matter how strong a recruiting org you have. The candidates will always want exposure to people in key roles in the company (Zuckerbeg at Facebook is famous for his "closing walks" with mid-level candidates).

2. High Growth: Multiple Recruiting Org Roles.
When a company is growing really fast, the set of roles on the recruiting team tend to fragment. When I was at Twitter, the company grew from ~90 to ~1500 people over a 2.5 year period. When growing this fast you need to start to specialize the types of people on your recruiting team. A. Sourcers. Sourcers research, cold call, email, and otherwise create a path to passive candidates. In some cases they then transfer the candidates over to recruiters who will feed the candidate into a coordinated interview process. Some sourcers manage candidates up through an onsite interview, but seldom beyond.

B. Recruiters. Recruiters manage the process of coordination of the candidate through scheduling various interviews (phone screens, onsite, executive, etc.) and then circling with the team or hiring manager to determine whether an offer will be extended. At some companies the recruiter may extend the offer, in others the hiring manager does so.

Your first few in-house recruiters should have experience sourcing as well. This helps in a number of ways:
1. The recruiter will likely be more effective in sourcing and recruiting specialized engineering roles.
2. There will be less hand offs between people on the team (e.g. sourcer, recruiter, hiring manager, etc.) which means less friction to the candidate and fewer people fall through the cracks.

Splitting the recruiter and sourcer roles tends to work best when you are hiring large number of people of a specific type. E.g. if you need to hire 50 backend engineers, 30 front end engineers, and 20 PMs, starting to segment recruiting roles makes a big difference.

Additional roles in a larger startup may include:C. Candidate researchers. These people may scrub LinkedIn for all the engineers at Google, prioritize them, put them into a spreadsheet, and then hand off the spreadsheet to the sourcers to actually do the outreach / pitch the candidates to interview.

These people usually only really get added to the team as it scales from 100+ to 1000+ people, and you are hiring large numbers of people in the same role.

D. Recruiting marketing. The folks who develop marketing materials, run ads, organize recruiting events, hackathons, website content, etc. to create an inbound pipeline of candidates. At a startup, this is usually driven by someone on the team you are recruiting for (e.g. an eng manager for engineering candidates). Alternatively, the marketing team at the startup may be responsible for this as part of their overall marketing efforts. Only as a company scales to e.g. a few hundred people or more does the possibility of a stand alone coordinating recruiting marketing role emerge.

E. University programs. Given the specific timing and cadence of new graduate and intern hiring, some companies will specialize sourcers/recruiting marketing/recruiters specifically for new grads coordination and hiring. When your startup is still small, instead of hiring dedicated university programs people, you can have your existing recruiting staff pivot to cover this area for the few months when it is most relevant.

4. Executive Hires: Retained Recruiter.
The main nuance for executive hires is the stage and brand of your startup. For a later stage startup with a well known brand name you may be deflating titles. I.e. your VP Eng may have been an SVP at another company prior. But, for most smaller startups, or lesser known companies, you tend to inflate titles - e.g. your VP Eng may have been an engineer manager at Google or Facebook where they ran a team of the same (or larger) size. If you are inflating titles, your existing recruiters may already have contacts at the Googles and Facebooks of the world. If you are deflating titles, you may want to engage a retained search.

For a retained search, you may pay an external recruiter some up front fee or retainer to find candidates for you. In general, these sorts of searches work best if you are hiring an executive for the company versus an individual contributor. One reason is that executive hires may be outside of your core network, or that executives may be more willing to talk to recruiters from a brand name firm than to someone from a less well known startup.

There are a number of brand name executive recruiters your angels, VCs, or advisors can connect you to.

Tougher To Manage: (Non-Executive) Shared External Recruiter.
In some cases companies will hire an external recruiter to help them hire individual contributor candidates. These recruiters will either get paid by hire (e.g. a flat fee, or %age of salary) or may ask for equity in exchange for recruiting help.

In general, if the recruiter is split between multiple companies at the same time, they will not yield the best candidates for your company:
a. They will push candidates to the company that either pays them the most per head, or the one they have provided the least attention to lately (to keep that company as a customer).
b. They won't always represent you well to candidates - but will rather pitch the candidate on multiple companies.

As such, it might be better to hire someone for a dedicated period as a recruiter or to try to spend internal company time on it instead.

Tuesday, August 5, 2014

When a large company tries to buy a startup, it will sometimes use a series of threats to scare the startup into selling. 90% of the time, these threats are baseless. Unfortunately, entrepreneurs often view these threats as credible and will sell their company early to the threatening party.

Examples of such threats include:

"We are launching a similar product soon and will crush you."
This is usually an empty threat. If the large company is so close to launching a product that will crush you, why do they want to buy you? Often, a larger company will indeed have an effort internally that is competitive, but it may be experiencing delays or be under-resourced, executing badly, or simply just not winning in the marketplace. In such a situation, they will approach your startup for acquisition.

In some rare cases, a company may have a product, platform or API that the startup is using. The company plans to enter the market and wants to buy the soon-to-be-competitive startup as a reward to that startup for being in its ecosystem. This allows the platform company to enter its own ecosystem in a way that keeps its platform partners happy. If this is the case, the threat of being crushed may be quite real.

As an entrepreneur, it is important to differentiate between empty threats, a company that is close to launching a product that is truly superior to yours, and a company trying to fill an internal hole or maintain peace with its 3rd party community.

"We will sue you."
There are a large number of frivolous lawsuits that happen. A larger company may sue a smaller one as a competitive move to try to drive the startup out of its market or to create an M&A opportunity. Some companies will use a threat of a lawsuit to help drive an acquisition.

Often, these lawsuits are baseless. However, if a startup has insufficient cash, it may not be able to bear the legal fees of a lawsuit. Lawsuits also tend to hang over startups, preventing their ability to raise more money or recruit great people.

I think something like 10-20% of the startups I have advised have gotten sued at one point or another. Only one of them ever settled the case, and the rest won the lawsuits or had them dropped. At least in the tech industry, most of the lawsuits seem pretty baseless.

"We are going to cut you off."
Some startups are dependent on larger companies for data, distribution, or other key aspects that drive their business. The larger company may take advantage of this by offering to cut off the startup from the very service that allows it to exist. Microsoft was notorious at one point for making its OS poorly compatible with apps that ran on top of it, once the app maker turned down Microsoft's acquisition overtures. This led to a situation in the 1990s where every VC would ask a startup about their Microsoft strategy, and how they planned to get around Microsoft.

What to do
First, take a deep breath. Realize that the situation your are in is more common then you think. Usually, the reason a large company wants to buy your startup is a lack of resources, knowledge, or momentum, to truly compete with your business. Alternatively, you may have an asset that will cut the time or effort the acquirer needs to build a relevant business. Either way, you need to determine how much of the threat is bluster versus a real threat to your startup.

As a startup being threatened by a larger competitor, you should spend time with your investors, advisors, and potentially legal team to think through the true threat. In some cases the right decision is indeed to sell or to change direction to a product that they can not derail directly. But more often then not you should keep going. Most threats turn out to be baseless. Work through the real threat provided by the larger company before giving up or caving in.